A bit of history
would help us understand Futures Trading in right perspective.

In India, it
started in an organized manner in 1875 at Mumbai for
cotton by Bombay Cotton Trade Association.It then began
to spread. Certain mill owners, unhappy with the working
of their association, began a new association in 1893,
called the Bombay Cotton Exchange Limited. It conducted
Futures Trading for cotton.

In 1890, a Gujarati
merchant, Mandali, started the Futures Trade of oil
seeds. They also did Futures trading for cotton and
peanuts. Although Futures trading worked in
Punjab and Uttar Pradesh earlier too, the Chambers of
Commerce, Hampur, which came into being in 1931, was
the first one to get noticed.

Soon
after, wheat Futures market started in various places
in Punjab like Amritsar, Moga, Ludhiana, Jalandhar,
Fasilka, Dhuri, Baamala and Bhatinda, and in Uttar Pradesh
at Muzzafarnagar, Chandahusi, Meerut, Charanpur, Hatras,
Ghaziabad, Bareili etc. In due time Futures market started
for pepper, turmeric, potato, sugar and jaggery.

Until
World War II broke out in 1939, Futures trading for
various Commodities happened in Punjab and Gujarat also.When
the Indian Constitution was framed, Share market and
Futures market were put in the Union List. So the regulation
of Futures markets is with the Central Government.

According
to the Futures Contracts Regulation Act, a three-leveled
regulatory system came into existence, Central Food
and Public Distribution Ministry, Futures Market Commission
(FMC) and the associations that are recommended by the
FMC for conducting Futures market.

A
law in 1952 classified Commodities into three--Commodities
that can be traded in Futures market, Commodities for
which Futures trading is banned, and Commodities that
could be traded only through special registration of
the associations.

However,
when Futures trade was temporarily breezed in the 1970s,
many associations were de-activated. In 1980 Khusro
Committee suggested to restart Futures trade for cotton,
jute etc. It also sanctioned Futures Trade in potato
and onion. In
1994, the Prof. K. N. Kabra Committee, which was appointed
in view of the market liberalization, recommended Futures
Trading of Basmati rice, cotton, jute, oil seeds, groundnut
oil, onion, silver etc.

There
was also a suggestion to raise Futures Market for Pepper
to the international levels.With
liberalization, government intervention began to decrease
in setting price limits of Commodities. The government
also narrowed its role of buying and distributing Commodities.
Gradually, by 2003 the Central Government gave consent
to start Futures Trading for most of the major Commodities.

Along
with major agricultural Commodities like rubber, pepper
and cardamom, there are 127 Commodities that can be
traded in the Futures markets now.